1. A mutual fund is a collection of money from different investors used to purchase stocks, bonds, etc.

, and is managed by a fund manager.

True

False Detailed Answer: A mutual fund is a fund operated by an investment company that pools your money with hundreds of other investors to buy stocks, bonds, options, commodities, or money market securities. These funds offer investors the advantages of diversification and professional management. 2. A loaded fund is:

A mutual fund that consists of more than 10 stocks.

A mutual fund that has a sales charge.

A fund that can get you arrested if you take it on a plane. Detailed Answer: A load is just one of the factors to consider when purchasing shares of a mutual fund. Don't pass up a great fund that has a load to get in a bad fund without one. The managed loaded fund may far surpass the investment returns of a no-load fund. Also, all costs must be weighed to compare loaded funds versus no-load funds. No-load funds can actually be more expensive in some situations. 3. Is a loaded fund better than a no-load fund?

Yes

No

Neither better nor worse Detailed Answer: Some financial planners do sell no load funds; others do not. Dave Ramsey does not dwell on whether a fund has a load or no load as much as he pays attention to how well the fund has done over long periods of time. There are lots of good mutual funds. Dave says to put your money in them and just leave it alone.

But keep in mind one of the main weaknesses of a no load mutual fund is that you usually have the ability to make major changes (transferring funds, withdrawals, etc.) without having to talk to your financial planner first. The result is that many investors jump out of good funds during bad times. This turns into buying high and selling low, a bad plan. A good financial planner will slow you down, remind you of your long term goals, and give you the confidence to weather bad markets. 4. What is the minimum length of time for which Dave recommends investing?

One year

Three years

Five years Detailed Answer: Dave considers investing to be a minimum of 5 years. Less than that is simply saving and should not be done with mutual funds. 5. Dave recommends investing in a single stock.

True

False Detailed Answer: The performance of the stock market as a whole has averaged near 12 percent annually; yet the average return of the single stock investor is closer to 7 percent annually. Also, if you place much of your nest egg with one or two single stocks, your risk skyrockets. 6. What are annuities?

A savings account within a stock.

A savings or investment account with a life insurance company.

The annual return on your investment.

Detailed Answer: When you invest money in an annuity with a life insurance company, your investment grows tax deferred. Annuities do require a little more education than some other investments, and done without understanding the rules or at the wrong time, annuities can be a train wreck. If done after other pre-tax investments and with money that is going to be left alone for plenty of time, it can be an option for getting tax deferred growth. Dave doesn't personally own any annuities himself. 7. Generally speaking, the more sophisticated investment is usually the better investment.

True

False Detailed Answer: Absolutely false! Just because an investment looks and sounds sophisticated doesn't mean you are going to profit from it. Never put money in anything you don't understand. 8. What is diversification?

The spreading of investments across different areas to reduce risk.

Putting the majority of your nest egg into one investment to maximize profits.

Investing equally for both retirement and college. Detailed Answer: Diversification is an investment strategy that involves buying a variety of different investments that are not highly associated with each other, in order to reduce risk. Dave suggests the following diversification: 25% in a growth fund, 25% in an aggressive growth fund, 25% in a growth & income fund, 25% in an international fund 9. Dave suggests investing in mutual funds that:

Are new and expected to grow.

Have at least a three year successful track record.

Have at least a five year successful track record.

Detailed Answer: A mutual fund's track record is the most important criterion you can use to help you decide whether to invest your money in it. Don't buy baby funds. If the fund is only three years old, it still needs diapers. Dave suggests at least a 5 year track record. Preferably, you want a fund that is old enough to have seen hard times. If the fund has at least a 10 to 15 percent average return over ten to fifteen year, you have a good fund. 10. When it comes to investing, Dave always suggests getting advice from whom?

A financial advisor recommended by co-workers.

A financial advisor who has the heart of a teacher.

Advice? You don't need advice! Detailed Answer: Don't make investment decisions by yourself. Dave always recommends getting advice from a financial pro. The financial advisor you choose should have the heart of a teacher and explain investing to you in a way you can understand. Would you like to know what professional financial advisor Dave recommends in your area?

Mutual Funds As the popularity of mutual funds has grown, so has the information about them. Take this quiz to determine if you understand mutual funds and how they work. 1. Most mutual funds offer investors the benefits of diversification, professional management and liquidity. True False 2. Open-end funds sell securities at a price based on their net asset value, and those shares are usually redeemed at their net asset value. True False

3. The primary differences between closed-end funds and open-end funds are that open-end funds may be traded on an exchange and their price is determined like the price of any other security. True False 4. Mutual funds that limit their investments to growth stocks are not pursuing a balanced investment approach. True False 5. The greater the interest of investors in protecting capital, the more appropriate it would be to recommend mutual funds that have a growth objective. True False 6. Securities firms are obligated to insure their mutual funds. True False 7. Sales charges associated with the purchase and sale of mutual funds are commonly called "loads." True False 8. The portfolio value of mutual funds seeking income are not subject to the risks associated with their investments.

True False 9. You do not pay capital gains taxes on a fund until the year in which you sell shares. True False 10. Funds' investment objectives may include capital appreciation, current income or preservation of capital. True False If you answered more than three incorrectly, you should consider learning more about mutual funds and how they can fit in your portfolio. Answers: 1 - T ; 2 -T; 3 - F; 4 - T; 5 - F; 6 - F; 7 - T; 8 - F; 9 - F; 10 - T
Retirement Planning With the explosive growth in America's older population, one thing is clear: the growing number of retirees in the United States is placing a greater strain on the resources of our Social Security system. Many Americans are concerned that they may be unable to enjoy financial independence during their retirement years. Which of the following questions are critical to planning a secure retirement? Check all that apply. How much income will you need during retirement? How much retirement income can you expect from Social Security? How much retirement income can you expect from your employer's

pension plan? At what age do you plan to retire? How long do you expect to be retired? How much capital must you amass before retirement? How much do you currently have saved for retirement? How much should you contribute to investments each year until retirement? What rate of return will you require from your investments to reach your retirement goal? How will inflation affect your retirement income? How much risk are you comfortable assuming with your investments? Answers: All of these questions are important to consider when planning for retirement. In fact, retirement planning may be the number one concern of Americans as they try to make certain they will be able to afford to retire. Global Investing In today's markets, investment opportunities abound worldwide, yet many investors fail to look beyond their own borders. How familiar are you with investing in foreign markets ? 1. The U.S. ranked #1 in performance (average annual total returns) in the 10 years ending December 29,1995. True False 2. The U.S., Japan, and Germany have the three largest economies in the

world today. True False 3. One of the most significant opportunities for investors is the spread of capitalism to nations emerging from communism and third-world status. True False 4. Portfolios with a combination of domestic and international investments have historically outperformed those invested in U.S. securities alone. True False 5. The U.S. has the fastest growing economy in the western hemisphere. True False 6. Diversification among domestic and international investments makes your portfolio less prone to volatility, despite the fact that international investing involves such unique risks as currency fluctuations, political instability and foreign regulations. True False Answers: 1- F; 2 -T; 3 - T; 4 - T; 5 - F; 6 - T Economics

Economic, social and political factors affect investments. See if you can determine which are positive or negative in their effect on the willingness of individuals to invest. Stocks Bonds

Positive Negative Positive Negative 1. Tight monetary policy 2. Low interest rates 3. High employment 4. Political unrest 5. Pending elections 6. Increased taxes 7. Tax cuts 8. International conflicts 9. High interest rates 10. Political stability 11. Ample money supply

Answers: Positive factors; 2, 3, 7, 10, 11 -- Negative factors; 1, 4, 5, 6, 8, 9 Stocks and Bonds Once you've made the crucial decision to set aside money for the future, you must then figure out where to invest it. See what you know about stocks and bonds with this quiz. 1. Cash savings probably will not significantly outpace inflation. True False

2. The risks of investing decline over time. True False 3. Bonds have traditionally been considered income-producing investments. True False 4. When interest rates are rising, the stock market isn't usually as strong as it is when rates are falling. True False 5. Buying a bond for less than par and selling it for more than par can result in a substantial profit. True False 6. Stocks are investments designed to help your money grow. True False 7. Laddering bonds is a strategy designed to protect yourself against the risk that interest rates will decline. True False 8. High rated municipal bonds usually have lower yields than corporate

bonds because they have a tax advantage. True False 9. The key difference among U.S. Treasury bonds, bills and notes is their term. True False 10. Because investors consider the U.S. government the most creditworthy borrower in the world, they refer to the latest 30 year Treasury bond as thebenchmark against which all other bonds are measured. True False All answers are true See how well you can identify the investment philosophies used by different investors. 1. You run "against the grain" favoring investments that have low price/earning ratios, trade close to book value and have small institutional ownership. Growth Investor; Value Investor; Contrarian; Cyclical Investor Income Investor;

2. You prefer investments that have moderate dividend yields and the opportunity for dividend growth. Growth Investor; Value Investor; Contrarian; Cyclical Investor Income Investor;

3. You look for investments that appear less expensive than the assets a company may have now, in hope that the price will rise.

Growth Investor; Value Investor;

Contrarian; Cyclical Investor

Income Investor;

4. You want to invest in companies that stand to benefit from shifts and trends in economic cycles, such as the housing, automobile and paper industries. Growth Investor; Value Investor; Contrarian; Cyclical Investor Income Investor;

5. You choose investments that appear poised for rapid earning growth or have shown long histories of steady growth. Growth Investor; Value Investor; Answers: 1, Contrarian; 2, Income Investor; 3, Value Investor; 4, Cyclical Investor; 5, Growth Investor Contrarian; Cyclical Investor Income Investor;

Risk Tolerance What is your risk tolerance? This simple quiz will help you determine your attitudes toward risk. 1. I plan on using the money I'm investing...... after 7 years or more (4) between 3 and 6 years(3) within the next 3 years(2) within the next 6 months(1) 2. What percentage of my investable assets (not including home) does this investment represent?

Less than 25%(4) Between 25% and 50%(3) Between 50% and 75%(2) Greater than 75%(1) 3. How do you expect your income will grow over the next 5 years. "My income will... grow quickly (new job promotion)"(4) grow ahead of inflation"(3) grow slowly or not at all"(2) go down (retire, raise children)"(1) 4. Do you have emergency savings? Yes(4) Yes, but less than I'd like(3) No(1) 5. I would feel comfortable risking % of my investable money if the chance of doubling was %. 10% and 10%(4) 25% and 25%(3) 50% and 50%(2) 0% and 0%(1)

6. Have you ever invested in individual stocks or stock mutual funds before? Yes, and I was comfortable with it(4) No, but I look forward to it(3) Yes, but I was uneasy with it(2) No, and I don't want to(0) 7. What do you want your money to do for you? Grow as fast as possible; current income not important(4) Grow faster than inflation; produce some income(3) Grow slowly and provide a nice income(2) Preserve principle, no matter what(1) Add up your point score and compare to the scale to see how risk tolerant you are: 5 = Very Conservative; 10 = Conservative; 15 = Moderate; 20 = Above Average; 25 = Aggressive; 30 or more = Very Aggressive